The Yields on Treasury Securities Remain Unchanged After a Subdued Inflation Reading for the U.S In the Holiday-shortened Session

Yields on U.S. Treasurys remained stable during Friday's truncated pre-holiday session as data indicated a continued deceleration in inflation throughout November, aligning with the Federal Reserve's objectives.

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As of 3 p.m. Eastern time on Thursday, the yield on the 2-year Treasury note (BX:TMUBMUSD02Y) stood at 4.34%, a marginal decrease from the 4.349% reported the previous day. This marked the lowest finish since June 1, according to Dow Jones Market Data. It's important to note that yields and bond prices exhibit an inverse relationship. Simultaneously, the 10-year Treasury note (BX:TMUBMUSD10Y) yielded 3.889%, a slight reduction from Thursday's 3.893%, while the 30-year Treasury bond yield (BX:TMUBMUSD30Y) increased to 4.042% from 4.034% late Thursday.

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Initially, Treasury yields experienced a slight uptick following the government's announcement of a 0.1% decline in the personal-consumption expenditures (PCE) index for the previous month. Year-over-year inflation slowed to 2.6% from October's 2.9%, reaching its lowest point since February 2021.

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The closely monitored core PCE rate, excluding food and energy, recorded a 0.1% rise in November, aligning with economists' predictions reported by The Wall Street Journal. Over the past 12 months, the increase in the core rate decelerated to 3.2% from the prior month's 3.4%, marking the smallest rise since early 2021.

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Additional data points indicated positive consumer sentiment as the year concluded, according to the University of Michigan's index. Durable goods orders rebounded by 5.4% in November, representing the most substantial increase since July 2020. However, new home sales experienced a decline during the same period.

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Bond traders in the U.S. participated in a shortened session on Friday, with a 2 p.m. Eastern time close, as per Sifma's schedule. In contrast, U.S. equity markets observed a full day of trading. The financial markets are set to remain closed on Monday for Christmas Day.

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Analyzing the situation, Benjamin Jeffery, rates strategist at BMO Capital Markets, noted that the inflation print was relatively soft. However, he pointed out that the market had an inclination towards anticipating a downside surprise, leading to a somewhat counterintuitive initial response in terms of pricing.